Washington farmers face rising costs in ongoing trade war

Washington farmers can expect a tougher year covering expenses even if political leaders finalize trade agreements with the countries that import apples, beef and wheat from the Evergreen State, a Washington State University professor said.

Randy Fortenbery, an agriculture economics professor, delivered the economic forecast Wednesday at the Spokane Ag Expo and Pacific Farm Forum. He spoke at length about the troubling overall picture of the forces grinding against what has been a robust U.S. economy.

"I think commodity prices, except for sorghum, are going to be a little bit better than last year. But we are talking dimes not dollars," Fortenbery said. "I don't think the price increase will offset the cost increases."

He openly contradicted President Donald Trump, who last year said trade wars are good and easy to win.

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"The biggest issue . is making some assumptions about the trade environment. It really needs to get stabilized," Fortenbery said. "I don't care whether it's big tariffs or no tariffs. People can adjust to tariffs if they know they are there permanently.

"What becomes difficult is changing the rhetoric on a weekly or monthly basis about what we are or are not going to do. That's not just a risk in agriculture, that is a risk in what has been a really healthy U.S. economy in general."

When last year Trump began threatening to place tariffs on U.S. imports of steel and aluminum, Fortenbery said, China immediately targeted two things Americans export the most: agricultural commodities and airplanes.

"We have, I'm going to argue, probably one of the most aggressive trade realignment programs since maybe the 1920s," he said. "What I mean by that is we are addressing every one of our trading partners simultaneously. We haven't done that in decades."

The problem is that large companies have operations in several countries. Some steel companies produce raw material in one place and then ship it to the U.S. to produce finished products. As a result, some face 25 percent tariffs on the same steel twice, which gets passed on to consumers.

"Winning trade wars is not easy. They don't really work," Fortenbery said. "It's one thing to go to a country and say we have some problems with the way we are trading. Going after everybody at the same time and expecting a positive outcome in the short run, that's a real challenge."

Trump has announced agreements with leaders from Canada and Mexico to replace the North American Free Trade Agreement. But until Congress ratifies the new deal, Mexico has withheld buying the same amount of American wheat and other commodities.

"This is a huge deal because we were told (NAFTA) was the worst trade deal ever. We were told the new one is an excellent trade deal, but until it actually gets ratified by Congress, it doesn't go forward," Fortenbery said. "In the current political environment, you can imagine we might have some political challenges."

Trump has also suggested he would pull out of NAFTA completely if Congress refuses to ratify the new deal, Fortenbery said.

"That would be a bad thing for agriculture. Mexico and Canada are really important trading partners for us on the ag side," he said.

Even if old trading partners settle the current trade war, U.S. producers have no guarantee that other countries will import as many American goods as before.

"The problem with trade disruptions is they last longer than one year," Fortenbery said. "Even if we come back as price competitive with a new deal . it doesn't mean that Mexico comes back and buys from us in the same volume, because they have already established a new relationship with someone else."

The top crop in Washington in terms of value is apples. The Evergreen State produces about 67 percent of nation's apple crop, he said.

"Our two biggest buyers are Mexico and Canada," he said. If the new deal isn't ratified "then the fruit sector of Washington is significantly at risk. How this resolves itself will have a lot to say about what really does happen in 2019 and 2020."

One bright spot has been high beef prices.

"Demand has really grown. We have exported a lot more beef than projected," Fortenbery said. "But a large part of that demand is from international customers. We have these huge inventories if the demand starts to decline because we are having trouble moving product into other countries."

Along with the trade wars, the value of the U.S. dollar has increased. That means a company in France or China will have less purchasing power to import Washington-grown apples or cherries.

"If we continue to have significant uncertainty in terms of what our trade opportunities are going to be this coming year," Fortenbery said, "then we might see a significant decline in farm income."